More thoughts on peak oil

In Saturday’s Wall Street Journal, Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, gave his explanation of what’s wrong with peak oil. Here’s why I don’t find his analysis altogether convincing.

Yergin does not offer a statement of exactly what he means by “peak oil”, though his essay refers to it as a “fear” and a “specter”. Let me therefore begin my remarks with a clarification of exactly what I intend to discuss. I propose the following three propositions as the core claims that need to be evaluated:

  1. The annual flow rate of oil production from a given reservoir eventually reaches a maximum, after which it declines.
  2. The annual flow rate of total global oil production will eventually have to decrease as a necessary consequence of (1).
  3. This peak in global production will be reached relatively soon.

Of these statements, I honestly don’t understand how a reasonable person could dispute (1). You could almost take it as tautological, and furthermore point to many, many examples of fields that passed their peak production long ago. I likewise see neither a conceptual nor an empirical basis for challenging (2). Thus it seems to me that the relevant debate is whether proposition (3) has any merit, and exactly what one means by “soon.” That question may or may not be what Yergin was intending to address with his essay. But since for me it is the core question, I would like to comment here on the implications of what Yergin wrote for what I perceive to be the main question of interest.

Yergin wrote:

This is actually the fifth time in modern history that we’ve seen widespread fear that the world was running out of oil. The first was in the 1880s, when production was concentrated in Pennsylvania and it was said that no oil would be found west of the Mississippi. Then oil was found in Texas and Oklahoma. Similar fears emerged after the two world wars. And in the 1970s, it was said that the world was going to fall off the “oil mountain.” But since 1978, world oil output has increased by 30%.

Let me begin by interjecting a few facts into this discussion. Annual production from the state of Pennsylvania in fact did peak in 1891, when the state produced 31.4 million barrels. Last year, the state only produced 3.5 million barrels, which is 89% below its historical peak. Texas production peaked in 1972, and is now 67% below the historical peak. Oklahoma peaked in 1927, and is now 75% below those levels.

Back to Yergin:

The date of the predicted [global] peak has moved over the years. It was once supposed to arrive by Thanksgiving 2005. Then the “unbridgeable supply demand gap” was expected “after 2007.” Then it was to arrive in 2011. Now “there is a significant risk of a peak before 2020.”

Again I’d like to bring up a few facts. Although it is true that global production did not fall between 2005 and 2010, it is also accurate to observe that it did not grow very much, rising only 2.2 million barrels/day (which represents 2.6% of 2005 levels) over these 5 years. Over these same 5 years, China increased its consumption by 2.5 mb/d. Thus, although the world did produce more, everybody in the world outside of China had to make do with less.


Total global oil production, in millions of barrels per day, annual 2002-2010 (data source: EIA).

Even in the absence of these facts, there’s a real problem with Yergin’s line of argument for the question at hand, and it troubles me because I have seen the same argument raised almost every time someone takes the skeptic’s position on the question of peak oil. Suppose I was trying to convince you that you are a mortal being, and your counterargument was, “but that’s what you said in 2005, and I didn’t die then! You said it again in 2007 and 2009, and each time you were wrong. Why should I believe you this time?”

Perhaps acknowledging one’s own mortality is a similar proposition to embracing the possibility that global oil production need not continue to rise forever.

In any case, I was not among those who claimed that the peak would arrive by Thanksgiving 2005, nor 2007, nor 2011. But I am among those who did claim, and still believe, that the slow rate of increase in annual oil production over the last 5 years has caused significant economic problems for countries like the United States.

Moreover, if having been wrong in the past were a valid reason to disregard everything someone says, it might be wise to ponder these words that Daniel Yergin wrote in 2005:

There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day — from 85 million barrels per day to 101 million barrels a day — a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

Dissecting what went wrong with that prediction is a topic for another occasion. I believe it was based on a careful, thoughtful analysis, and provides an interesting case study in some of the challenges facing anybody who tries to make these kinds of predictions. But I do feel that the meme of “don’t listen to the peak oil nuts, because they’ve always been wrong before” should have gotten a bit tiresome at this point.

The other main issue Yergin takes up in his most recent contribution is concerns about the logistic curve that M. King Hubbert successfully used in 1956 to predict the peak of U.S. oil production around 1970. Here again I feel that Yergin is attacking a straw man. The core issue should be the validity of propositions 1-3 above. While it is true that some people have used variants of Hubbert’s approach to propose particular dates for when “soon” might actually be, I do not include myself among them. To cast those mathematics as if they were the central issue in the debate is doing a significant disservice.

I submit that meeting the growing global demand for crude oil over the last five years has posed significant challenges for the world economy. And those who worry that the next 5-10 years might be like the last should not be dismissed as crackpots.

94 thoughts on “More thoughts on peak oil

  1. jonathan

    How do you address:
    1. Exploration. The 1880’s fear was because they didn’t realize other oil was out there. I hear all the time: we only need to find more oil.
    2. Cost driven oil. As cost rises, more oil becomes recoverable, given both the higher price and technology advances. Many of the arguments for shale oil, for example, depend on both those factors.

  2. Vangel

    In any case, I was not among those who claimed that the peak would arrive by Thanksgiving 2005, nor 2007, nor 2011. But I am among those who did claim, and still believe, that the slow rate of increase in annual oil production over the last 5 years has caused significant economic problems for countries like the United States.
    But there are problems that Yergin is ignoring.
    First, those that claimed that production would peak at a particular period have had to use the available reserve and field production data. Given the inadequacy of that data it makes sense that as uncertainty is reduced and more information become available the predicted window will get a lot smaller. The best data suggests that the production of conventional oil has already peaked.
    Second, there is the issue of data consistency. If the total production figure keeps getting reclassified to include biofuels, NGLs, refinery gains, or other categories not previously included we do not have an apples to apples comparison. While that is meaningless for the larger argument it could certainly be used to hide Hubbert’s Peak for a while.
    Third, we have the misunderstanding of the critics about what the Peak Oil advocates are talking about. They do not care much about biofuels or unconventional oil because they know that those sources are not material in the grand scheme. When I hear a Hubbert advocate speak I know that s/he is talking about conventional oil. On that front, it can be argued that the global production of light sweet crude peaked in 2005. While hundreds of billions in new investment have managed to keep production levels from declining that investment has not been able to get supply to go up.
    Clearly there is a significant problem on the supply side of the energy sector. While specialists can use accounting games, changes in definition, and outright lies to hide the fact that we are at or near Hubbert’s Peak ordinary people need to ignore the jargon and empty rhetoric and look at the material factors. As the marginal cost of production rises significantly and the energy return on the energy investment declines we will need to get moving and come up with alternatives that actually work. This means stopping subsidies for failed technologies (wind and solar come to mind) and more investigation into the development of methane hydrate deposits, coal, nuclear, etc.

  3. Dan

    Well put Jim. I find this to be a very balanced (and refreshing) assessment. I would add:
    We can be pretty confident that there is a lot more resource out there for the near-to-medium term (5-25 years). The question is at what oil price is it economic to develop and produce? Global oil prices (Brent) this year have been sustained above $100/bbl longer than any period in history (including 2008).
    This should drive a lot of new investment compared to 2005 – 2007 (avg $65/bbl). Plus while you can’t rely solely on technological innovation in the future, it has clearly brought down the cost of producing a lot of resource. Ex. – natural gas prices in the US continue to be the lowest they’ve been since 2002.
    Nonetheless, the faster you use a nonrenewable resource, the faster you will eventually run out.

  4. colonelmoore

    No doubt oil will be on the decline soon enough in the future that we should be very worried. But even if production could be ramped up, the real speculators are the sovereigns that can make the choice to store oil in the ground for future sale at even higher prices. Their incentive would be to be the last man standing when world oil runs short.
    So any rational person will be looking at alternatives. Luckily this country has a huge quantity of fossil fuel that is not terribly difficult to extract using today’s technology. The issue is converting it to fuel.
    First up should be conversion of natural gas to ethanol. Celanese claims they can create cheap ethanol from natural gas. They are an established chemical company that does not need to hype new processes to raise capital, so let them build some plants and help sop up some of our natural gas glut.
    Additionally natural gas cars are good choices for commuter vehicles. If government were to subsidize anything, subsidizing the installation cost of the first natural gas pump in an area would seem logical.
    Next up is coal. There are many different processes for converting it to fuel. Right now at Johannesburg Airport jet fuel from coal meeting international aviation standards is sold.
    Coal to fuel plants are currently very costly. There may not be much investment in coal until natural gas prices rise enough to assure high profitability for coal fuel.
    A forward looking transportation fuel policy in this country will look to removing barriers to implementing these technologies. I see regulatory risk being minimized as voters put the kibosh on anti-fossil fuel regulators.

  5. sym

    Strange article, full of contradictions and sophistry.
    For instance, you state “The best data suggests that the production of conventional oil has already peaked”. But according to your own definition “has already peaked” means that total production has gone down, in absolute numbers. Which is at odds even with the data presented in this article, not to say reality.
    Look at this series of numbers: 1 .. 3 .. 7 .. 19 .. 21 .. 23 .. 23 .. 25. Has it peaked? No, even if it surely stopped growing as fast.
    As to the “mortal being” sophism, that’s not the issue. Nobody is saying that the oil production will never peak. The question is when.
    What the “peak oil nuts” (your expression) are saying is not “you’re mortal”, but “you’re gonna die tomorrow” .. “oh no you’re gonna die in April next year” .. “duh wait your death will actually occur during May 2014” and so forth.
    Which is why their judgement is questionable. The problem is that this type of discourse encourages (or enforces, if in government) a certain type of action.

  6. pabelmont

    Oil production may peak (or cease) either because it gets too expensive to PRODUCE oil as compared to other equivalent substances (fuels, industrial feed-stocks) OR because it becomes too expensive to USE oil (global warming worriers believe that the world should back off any use of of any fossil fuels).
    It is short sighted to talk only about the PRODUCTION costs when the USE costs are (or are said to be) so vastly higher.

  7. colonelmoore

    The problem with converting coal to hydrogen is that coal ranges from over half carbon to more than 75% carbon. Using less than half the energy in a fuel source is the height of waste. What then do you do with the leftover carbon in coal? I suppose you could generate electricity with it.
    Moreover, to use hydrogen in cars would require establishing an entirely new pipeline infrastructure and also developing new forms of vehicle fuel tanks, not to mention adding yet another set of underground tanks and fueling pumps at filling stations. Do you deliver the hydrogen by tanker trucks to filling stations? How many BTUs of hydrogen can you fit into one tanker truck? How much hydrogen will that tanker truck use to transport a load of hydrogen to filling stations?
    So what are the true costs and what is the actual timeline for ramping up a hydrogen vehicle fuel system?
    Compare that with natural gas, which has a pipeline infrastructure already built all the way to individual addresses in most locations and automobile production lines in place. Compare it to refined gasoline, which can be made from coal and which already has pipelimes criss crossing the country. Compare that to ethanol, with well established storage facilities and production vehicles running on 85% ethanol and 15% gasoline.
    If hydrogen is ever to become a transportation fuel it should never be made from fossil fuel.

  8. Jacob

    sym – The professor’s statements and data aren’t contradictory. He mentions conventional oil peaking and the graph is for total oil production (conventional and non-conventional). If you are saying that conventional oil production has not peaked, please provide a credible link as this is a field that interests me.
    I agree with you that the professor’s allusion to “mortal being” wasn’t best choice, but as neither of us know his intentions, calling it sophism does nothing but discount your opinion in the eyes of rational readers.
    Professor – Would it strengthen your propositions to rephrase (3) as: Given (1) and (2), depending on timing, global oil production will eventually plateau and decline. It makes it more objective and (for some unknown reason) economics and oil both seem to be emotionally charged industries nowadays.
    The factors behind the “when” of this are technology and economics. Ultimately the when depends on reserve replacements, production costs, $/bbl, and growth rates. The relationships between these have been noted in other places.
    A good article about cumulative availability of petroleum reserves is:
    Aguilera, Roberto F., Roderick. G. Eggert, C. C. Gustavo Lagos, and John. E. Tilton.
    2009. “Depletion and the Future Availability of Petroleum Resources.” The
    Energy Journal
    , 30(1): 141 – 174.
    Remember, the stone age didn’t end because we ran out of stone (which hopefully isn’t taken as a sophism).

  9. eric

    Thank you for an understated but devastating critique. In retrospect, Yergin’s optimistic 2005 article looks more ridiculous than all but the most fanatical peak oil doomsaying of the time. Since 2005, oil production has been, as you say, mostly flat, and that is in the context of extraordinarily high prices (much higher than the $60/barrel 2005 price that Yergin strongly implied would fall). Supply is very obviously a problem, and I’m not sure what Yergin has to gain by pretending it isn’t.

  10. Steven Kopits

    I think of peak oil as occuring with a specific technological context. If the technology changes, the available resource also changes. This much is true wrt Yergin. However, for conventional oil production–meaning traditional onshore and offshore production–we’re probably near some peak. By the way, the 2005 peak notion came from Ken Deffeyes (Prof. emeritus of Geology at Princeton), still the best oil supply forecaster from the last decade, all things considered.
    Oil sands can continue to expand, but historically have not been able to move the needle much.
    Shale oils are expanding, and could expand, materially. I could argue that they might contribute up to 20 mbpd globally by 2030. It’s possible, but very pre-mature to make such claims. We just don’t have enough track record yet, but one could can make a spreadsheet case if so inclined.
    But even if shale oils hit the high mark set here, they will still not be enough to quench the global thirst for oil, based on our estiamtes for demand.

  11. Stephen Kriz

    If anyone has any doubts about the fact that oil is an economic and environmental dead-end, read the book “Fleeing Vesuvius”, which is actually a collection of essays about oil and climate change. As one of the authors points out, it is not important when the last barrel of oil is pumped out of the ground, because the breakdown of human civilization will have started long before that happens. When oil becomes so difficult and/or so expensive to extract, our modern society begins falling apart. This is happening already – economic growth is grinding to a halt. The energy return on energy invested (EROEI) has fallen off a cliff in the past ten years and the world’s economy has followed. To my earlier point, there will be no one around to pump the last barrel of oil out of the ground, because they will be too busy foraging for tree barks or ants to eat before they starve to death!

  12. Marc V

    The big fields of easy oil are gone. The Sauds continue to use tricks on their big fields, but eventually the oil flow squeezed out of the sand will reduce to a trickle. Sure, there is plenty of oil still out there but it’s increasingly difficult to get to and profitably extract.
    “Cost driven oil” is not the issue but EROEI: energy returned on energy invested. The price of a barrel of oil may be high, but the energy needed to extract that barrel will rise accordingly. Considering the other investments (capital, equipment, labor, land, taxes) to get that barrel of oil out of the ground and into storage, you may end up with no return. Maybe it should be called “Peak Easy Oil”.
    Finally, as oil-exporting countries develop their economies and use of their own cheap oil, they eventually use up their supply and decrease the amount of oil available for the world market. We are seeing this more and more as the supply of oil available for export decreases even though the total world output has flattened or slightly increased (depending on the numbers you refer to).

  13. Bruce

    Peak Oil is woefully misunderstood, especially by the detractors (purposefully or otherwise), many of whom are paid shills for the energy industry. But if one is going to be a shill, that’s not a bad gig these days.
    The concept of net energy (EROI) is even less known and understood. Without growing surplus net energy, there can be no growth of real per capita economic activity, which in turn means no net surplus of debt-money, profits, investment, production, and employment to sustain growth of energy demand, investment, extraction/production, and profits.
    At current trend rates of oil consumption and imports, assuming we are at or near peak crude production worldwide, China will consume the entire world’s production of oil by mid-century.
    Long before that, however, China’s oil consumption will converge with US oil imports (as soon as the next few years), with oil exports from oil-producing countries declining, and available net oil exports (total exports less China and India’s imports, credit going to Jeffrey).
    Were the trend rates of oil consumption and imports to continue, China’s oil imports and consumption will reach that of the US by no later than the early ’20s, meaning that US-China oil consumption combined will account for 50% of consumption by the mid- to late ’10s and nearly two-thirds by the early to mid-’20s. Think about that for a minute.
    What does the rest of the world (ex US-China) do when they get no more than one-third of global oil production in a decade or so? And the drag effects on economies will occur long before; that is, like right now.
    From a strategic energy and national security perspective for the US, EU, and Japan, China cannot be permitted to continue to grow oil consumption at 8-10% in the Chinese economy 8-10% in real terms and 12-15% or more in nominal terms (compounded doubling time of 5-7 years!!!).
    China’s runaway growth of fixed investment and oil consumption poses an imminent national security threat to the West and Japan (Anglo-American imperial trade regime).
    Yet, the irony is that China’s unprecedented growth (and resulting accumulation of US$ foreign exchange reserves) is a result of many tens of billions of dollars of US firms’ investment over the past 10-20 years. Our own largest companies, desperately seeking cost savings and growth of markets and profits, are creating the global existential threat from China-Asia’s unsustainable growth.
    If one wants definitive evidence of Peak Oil and falling net energy per capita, look only to the rate of change of growth of US and EU real GDP per capita since ’07-’08 and going forward. Long before the decade is over, China-Asia will likewise experience contracting real GDP per capita.
    Growth is over, friends, and that’s what Peak Oil is ultimately about. We will have to wait to see if Peak Oil and falling net energy also means escalating resource wars between the US and China, which is characteristic of Long Wave Trough and LW Upwave and LW Peak eras since the 18th century.
    Neither the US nor China can afford a protracted regional war or a world war; but neither can the US allow China to continue to grow.

  14. jt

    Related comment as JHamilton. Ignoring the hyperbolic up/down moves in oil, one could guess that oil moved from $30 in 2003 to $65 in 2009, and a smaller move than that in non-USD basket and after inflation. And this was after 20 years of flat or declining real pricing. One of the standard arguments for the timing of peak oil, is whether there has been enough investment to postpone the peak from the “doomsday hour” of ~2015-2020, or there is a real fundamental production peak that even $300 oil for 10 years cannot solve.

  15. JDH

    sym: Among other misunderstandings, you seem to have thought that the comments submitted by reader Vangel were part of my original article, and then became disturbed by the discovery that Vangel and I were not saying exactly the same thing.

  16. colonelmoore

    Bruce said, “Growth is over, friends, and that’s what Peak Oil is ultimately about.”
    Is growth over in Canada, which is an oil exporter?
    It seems to me that the future lies with those whose fuel trade balance is positive. As oil becomes scarcer, alternative fuels will take up some slack.
    South Africa is interesting because the government controls the price of gasoline made from coal, setting it based on oil prices. The historical data is available on the Web. Apparently Sasol could make a profit when oil was at $33 a barrel.
    We have 25% of all the recoverable coal in the world. No other country has such a concentration of fossil fuel. It is clear that, given a choice between shutting down our economy and turning coal into motor fuel we will do the latter.

  17. Bruce
    Adding to my earlier comments and to the larger context of the discussion, note that the price of crude oil adjusted for constant 2010 dollars (see the BP chart at the link above) is well above any recessionary/depression-era period in US history save for during the Civil War and Panic of 1873 and the late 1970s to early 1980s, periods during which prices were around the price of oil since Peak Oil in 2005-08.
    The average price of oil since US peak production in 1970 has been $29, $33 since 1980-81, $39 since 1990, $56 since 2000, and $75 since 2000. The average price of oil is up an order of exponential magnitude since 1970.
    Not coincidentally, there has been no net growth of US private payrolls per capita since the late 1980s to early 1990s. There as been no per capita full-time US employment growth since the late 1970s to early 1980s.
    There has been no male employment growth per capita since the 1960s.
    Males age 20-34 earn 30% less than the previous generational cohort in 1970. Adjusted further for debt service to income and higher payroll taxes and the incremental cost of housing to income, these same males earn just 40% of what their male generational predecessors did in 1970.
    During the period of US peak crude production from 1920 to 1970 (~4.6%/yr.), the price of oil averaged $10-$20.
    By this measure, there has never been growth of real per capita GDP with the constant-US$ price of oil persistently above $20-$30.
    Unless the price of oil falls back to the $20s-$30s or below and persists at that level, there will be no US real per capita GDP growth (and the 10-yr. change of real private GDP per capita will continue to contract further).
    Moreover, were the price of oil to fall to the $20s and below, it will likely be the result of another global deflationary contraction, only this time the BRICs are likely to join the party, pulling demand and global economic activity down still further.
    While US working-class households have experienced the very real decline in economic prospects and their larger socioeconomic effects on security and well-being since US peak crude production in the 1970s, the self-satisfied bourgeois professional middle-class and upper-income households have been mostly isolated (even benefited) from the realities of US peak oil production and the resulting deindustrialization and financialization of the US economy since.
    The global economy cannot withstand the price of oil at these levels, which implies that there will be insufficient growth of economic activity to sustain the EROI for “alternative energy” and “dirty oil” investment and production hereafter.
    Shale and tar sands investment and production is setting up for a tumble.

  18. mulp

    “Peak oil” projections are generally done using only half the scissors.
    In the 50s and 60s, drill baby drill was highly subsidized (I remember reading Milton Friedman’s regular attack on tax dodges that made virtually every doctor, dentist, and lawyer oil well owners) and US and British neo-colonialism ensured dictators were providing easy access for the US/UK oil producers. Only the nutcases were predicting oil shortages, because after all, the Texas Railroad Commission had been limiting production by clamping down on demand by setting a high floor on price, so oil capacity exceeded demand because of the artificially high price.
    But that price hadn’t increased for over a decade of high inflation, so OPEC was formed to hike that price floor. Surprise surprise, the higher price shifted the demand curve from what it was when Hubert was making his forecasts.
    And in the rest of the world, everyone worries about the oil running out and the prices skyrocketing with all sorts of security problems following. So, most of the world has spent a lot of effort on changing their demand curves. And even the US has changed its demand curve based on expectation of peak oil.
    The response to peak oil requires changing the demand curve. Changing the demand curve early can delay peak oil and delay the decline.
    So, you can’t talk about peak oil only by looking at production/supply curve.
    Of course, the reason Yergin was wrong on the production increase was likely the consequence of fear, fear on the part of the Saudis too much oil would drive down their revenue, fear of losing election causing Chavez to need high oil revenues which led to both lower production to high demand and higher royalties, fear of Saddam leading to sanctions and invasion, fear of the US leading to bombing pipelines, fear of Iran leading to suppression of Iranian production.
    On the other hand, the Saudis really fear policy based on oil reaching peak and then declining, because that would lead to excessive shifts in the demand curve by imposing a high tax on each barrel of oil to pay for shifting to sustainable alternatives, which would really result in lower production.

  19. Bruce

    GK, please see my posts above for why US oil consumption per capita is where it is. By implication, if we reduce real per capita industrial production another 70-75%, as has occurred since US peak oil production in 1970, i.e., offshore even more production and employment, we could really reduce oil consumption per capita.
    While we’re at it, we’ll need to add more debt to replace production, physical capital stock, and value-add employment in order to keep GDP growing. But that should be no problem, right? Since ’06 it has required $5-$6 of total US credit market debt to produce $1 of GDP. Perhaps we can increase that to, say, $8 of debt to $1 of GDP? $10? $20?
    For Transhumanists, infinity is just a number that need not have any basis in thermodynamic reality. After all, we’re all going to evolve into biomachines and leave the planet at some point after the onset of the singularity, right? (I suspect most of these folks have already left the planet, so to speak, or they are from another planet and know something we don’t.)
    What has been referred to as “growth” since the 1980s has been growth of debt/GDP and /income, medical services spending (we spend 50% on the sickest 5%), and gov’t spending, including accelerating growth of spending for imperial oil wars since 9/11 (war as economic policy by other means).
    Moreover, the author mentions not a word about EROI. There is no free energy lunch, and Transhumanists’ infinity and beyond is definitely not free. (“Increasing returns” to processing power, connectivity, and speed imply marginal costs falling to zero, meaning that ultimately nothing will be produced at any price because there won’t be growing returns to extraction and to incomes to produce and buy anything at the rate we’re going.)
    Further, one wonders if the author has ever heard of “population carrying capacity” (and load), “phantom carrying capacity”, and the notion of “energy slaves”.
    How does he propose that solar, wind, wave, algae, and batteries will allow us to replace even a fraction of our 150-200 fossil fuel “energy
    slaves” we each have per person per year in human energy/work equivalent terms to keep our civilization going? In fact, it requires some 45-60 billion “energy slaves” (5-6 planets’ worth of equivalent human energy/work) to keep the US functioning.
    There is a much higher probability that humans will see the number of “energy slaves” fall (emancipated) from 150-200 to 1-3 before solar, wind, and wave power allow us to maintain our high-entropy lifestyles and Transhumanists can escape thermodynamic reality in their virtual fantasyland, including where all virtual entities have their own lifetime supply of cyber-soma and Teslas to drive under the influence anywhere they choose.

  20. Lil'D

    It’s hard to read the physicist…
    whining for paragraphs about some website that blurbs “energy is the most important substance”.
    Some people see the forest. Some miss it for the trees. Lumo is missing the trees for the bark and leaves…
    further, dimwitted environmentalists …
    environmentalist morons,
    blah blah attacking arguments from odd directions. I don’t think anyone is arguing that cost-benefit doesn’t matter, but Lumo seems to think that by stating the profits drive investment, he somehow demolishes the EROI argument.
    This is not at all compelling.

  21. spencer

    Whether or not we have reached peak oil may not be the relevant question.
    The relevant point may be that we have passed the peak of cheap oil.
    We have run out of $10, $25, $50, $75, etc oil.
    The marginal price of oil is rising sharply.
    At $100 or $150 oil we may produce more oil than we did at $75 oil, but the economic implications are important.
    For some 200 to 300 years we have been raising living standards by substituting cheap energy through steam, gasoline and electric engines for muscle power. But if we no longer have cheap energy to substitute for muscle power can we continue to enjoy raising living standards?

  22. ohwilleke

    There are holes in the three propositions mentioned: one can reduce production temporarily and then increase it later (OPEC does this intentionally with some regularity), technology can make previously uneconomical to access oil economically viable, exploration can discover new finds, and so on. But, empirically, these issues turn out to be not material. Oil fields that have had sustained non-strategic declines in production generally don’t recover production. Lots of oil fields have received that point. The growth in the number of new fields has been modest.
    How close we are (proposition 3) is squishy. While the reasoning is little different if it is sixteen months or sixteen years, the practical economic and policy implications of that difference are profound, and the rate at which production falls from the peak, which a peak oil production doesn’t even address, also matters a lot. Peak oil itself also isn’t very informative about oil demand or how economic development trajectories are likely to be influenced by rising real oil prices.
    There are also practical boundaries to price driven increased extraction. Developing petroleum substitutes from renewable plant sources and conversion of liquid hydrocarbons from coal (processes that produce oil sustitutes for well under $100 per barrel once up and running at scale) puts an effective cap on the cost at which it makes economic sense to extract petroleum by other means and as those processes grow much efficient with scale and experience the cap on the economic price for petroleum extraction falls rather than increases. These alternatives also mean that peak conventional oil may put a squeeze on electricity prices (due to diverted coal) and food prices (due to diverted farming capacity).
    Higher petroleum prices also make alternatives for the purposes to which petroleum is used more desirable. For example, when gasoline is at about $16 per gallon, it becomes very hard for gasoline powered individual household owned and operated vehicles to compete economically with plug in electrics and rail and public transportation via bus. Falling prices for metallic glass products make plastics less attractive. Higher prices for petroleum based fertilizers and other farm products make organic foods more competitive vis-a-vis ordinary foods. In some low volume applications (e.g. airplanes, plastics, pharmacuticals) petroleum or a good petroleum substitute is pretty much indispensible. But, rewewables and coal conversion can easily accomodate that low volume demand)
    The only technological breakthough that could plausibly circumvent a peak oil scenario that comes to my mind would be development of cheap technology to exploit oceanic frozen methane beds, and doing that looks likely to be too expensive and risky for the medium term future.

  23. Ricardo

    Peak oil is a red herring. The real question is will we see peak energy production? Take a look at our world today. What is the most significant difference from the past?
    Think about it. You drive down the street and what are people doing in the cars around you? Talking on cell phones. You go to a restaurant and what are people doing? Sending text messages. You travel on an airplane and what is the person beside you doing? Reading from an Ipad.
    Our world is being revolutionized by energy, but not oil. Oil is still the best energy producer for large quantities of energy but the revolution is in batteries and micro energy production.
    Very rapidly the post office and all its trucks and airplanes (oil hogs) are becoming obsolete. Companies no longer mail documents but send them electronically. Just consider how much oil consumption has ended from emails alone?
    In truth peak consumption will come a lot sooner than peak production. Battery and other forms of energy are significantly reducing the need for oil consumption and this will continue. And that is not to mention life-style changes (email, Facebook, Twitter). Of course there is a large need today for oil to produce electricity, but can electricity be produced by coal, or natural gas, or many other ways? Oil is an important energy source but only because its btu/cost ratio is so positive.
    Yergin is wrong in the sense that you have painted him, but he is right in another sense. Every energy crisis in history has been created by government’s interference with energy production, usually with all good intentions (the road to hell anyone). Richard Nixon is by far the most obvious poster child for government creation of an energy crisis. If energy production is left alone there is a flood of energy because we are totally immersed in energy especially from sunlight which is converted into other forms by plants in ways we take for granted.
    The insane obsession with oil is simply much ado about nothing.

  24. 2slugbaits

    One of the things that should be considered when wondering about “peak oil” is the quality of the oil coming out of the ground. I could see a case where total volume might continue to go up for awhile, but if the quality goes down and each barrel is sourer and muddier, then this would sure feel like “peak oil.”

  25. Patrick

    Lubos is a more than a bit of a libertarian crank. Being good at doing math to fiddle with a theory that, over about 40 years, has provided precisely zero falsifiable predictions might make his an authority on juvenile naivete and time wasting, but it hardly makes him qualified to make pronouncement on energy policy.
    As for the argument that peak oil doesn’t matter because the market will magically produce a solution… that maybe. Let’s hope. But hope is not a plan. There’s no reason to believe that the market solution won’t be deflation back to the neolithic. We need a better plan ‘B’.

  26. C. Paul Davis

    September 20, 2011
    The reaction to Daniel Yergin’s article in the WSJ has just about what I expected. The world’s opinion on Peak Oil has changed and today more people are more informed and won’t easily accept something as “the gospel truth” because they say so. Peak Oil is a very important world challenge and it is not to be dismissed because a highly regarded world figure says that Peak Oil is a myth. In this case it is Daniel Yergin, author of his great book called “The Prize” who wrote or stated something negative about Peak Oil in the WSJ that has caused this torrent of comments – mostly negative.
    In 2005 I started to research what Peak Oil was all about. In 2005 it was not a common belief that Peak Oil was for real for sure – I would guess that less than 10% believed in Peak Oil. Today,my best educated guess is more than 50% of knowledgeable oil people believe in Peak Oil, including CEO’s of some major oil companies.
    So, some good positive progress has been made and more will be made by organizations like ASPO going forward.
    We must all recognize that the timing of Daniel Yergin’s latest article is tied directly to his new book called, “The Quest” that he is out promoting by appearing on many guest talk shows. I have already ordered his new book because I am sure it will contain a lot of great information about the oil industry and be very enjoyable and easy reading like his first book.
    The other aspect of his new article and his new book is that we must recognize that Daniel Yergin is simply a lobbyist for the oil industry and he is very good at it and is paid quite well for what he does. It is also very helpful to CERA and IHS for sure.
    During my due diligence on Peak Oil over the past six years, I came across something from Daniel Yergin’s days at Harvard. The piece stated the following: “In 1979 Daniel Yergin and Robert Stobaugh co-edited a book called, “Energy Future: Report of the Energy Project at the Harvard Business School”. The first two chapters were titled: “The End of Easy Oil” and “After the Peak: The Threat of Imported Oil”. Does any of this sound familiar? A person can change their opinions or beliefs for lots of reasons.
    There is no question that Daniel Yergin is a very smart, educated, and successful businessman. I like his personality. I am sure I would enjoy meeting him some day and talk about Peak Oil. I have written over 50 pieces on Peak Oil over the past six years. Until then I will continue to ask myself two questions; 1. Why did he change his mind while at Harvard? and 2. What does he really believe about Peak Oil?

  27. RJ

    The oddest part of reading these comments is the certainty of the predictions of societal collapse. Glee, even.

  28. Bruce

    slug, you’re talking about oil net energy and energy density, which relates to the notion of “energy slaves”.
    The top 1-10% of US households require an equivalent of 900-1,200 to 2,700-3,500 “energy slaves” to sustain their material standard of consumption, which is equivalent to the population of a US village or small town.
    The top 0.1% of US households require the fossil fuel equivalent of human energy/work of at least 8,000-10,000 “energy slaves”.
    There is virtually zero probability that wind, solar, wave, algae, and batteries will replace even a small fraction of the energy density from employing our 150-200 oil-based “energy slaves” per capita.

  29. GK

    Who cares about the US?
    WORLD per capita consumption has not increased since 1982. Again, WORLD.
    And spare me the ‘India-China are growing’ old saw. The world also grew a lot from 1982-2011, with no increase in per-capita oil consumption.
    The oddest part of reading these comments is the certainty of the predictions of societal collapse. Glee, even.
    Bingo. That is always a sign of a commiseration cult rather than rational analysis.
    Read my link above for why ‘Peak Oil’ gloom is illogical.

  30. Gee-off

    For what it’s worth, I agree with Spencer. We should really be discussing the peak of cheap oil, not just the peak of oil by itself. There is still plenty of oil available, but it is just going to keep on getting more expensive.
    Naturally, as oil gets more expensive people will begin to make decisions that require less oil. For example, natural gas cars may become more popular, telecommuting will be more frequent, more people will use public transportation, and the list goes on.
    The peak of cheap oil is real, but so are the alternatives to oil for most (but not all) human activities.

  31. GK

    Your tangential rant is unimpressive. The blog linked does not even mention transhumanism once. You went into your memorized rant on a hair-trigger.
    The point is, peak oil is not a logical fear, but rather a means through which pessimists and other assorted losers commiserate about how the world that didn’t give them lives they think they deserved, should end.
    I notice none of the ‘Peak Oil’ cultists can admit that natural gas is a) one-third the price of oil, and b) now obtainable in nearly unlimited supply.

  32. Bruce
    C. Paul Davis, you’ll appreciate the video at the link above.
    The Pentagon and Bundeswehr planners have no doubt about Peak Oil and its implications; and they have been busy devising strategies and contingencies for a potential war with China. In fact, the invasion and occupation of Afghanistan and Iraq is a forward military tactical move to encircle Iran and Pakistan and contain any designs by China and Russia on Middle East oil supplies and shipping lanes.
    Those who doubt the long-term (permanent) structural effects of Peak Oil and falling liquid fossil fuel net energy and oil exports are either uninformed, in denial, naive, or purposefully spreading disinformation for whatever reason.

  33. Dismalist

    Society started collapsing in 1968, and it hasn’t finished yet, here.
    As for energy, we’ll go nuclear. The rest is trivia.
    Oil is a non-problem.

  34. pebird

    So, 6 years ago Yergin predicted 101 bbpd and instead it is 92, this we should ponder?
    I wish most 5-year economic predictions could be as close.
    There may be other reasons to criticize Yergin, but that one didn’t do it for me.

  35. Anonymous

    Energy from oil has peaked. Redefining oil to include ethanol, natural gas liquids, etc. has created an illusion of an undulating plateau, BUT the energy content of this latter day ‘oil’ is about two-thirds of that of oil, as it was previously defined, barrel against barrel. Count the joules, or btu’s if you prefer.
    Deffeyes was more or less right on.
    And this doesn’t begin to address the other aspects of the peak oil era such as: the oil energy available to the non-oil energy sectors of the economy, oil-energy per capita, oil-energy available for import given the propensity of producer nations to consume more of their own product…
    Yergin is a propagandist for the oil industry which does not want to see the flow of consumer dollars spent on its products go to more productive endeavors. The disinformation is deliberate.

  36. A different RJ

    I don’t think any serious individual predicts dire consequences from Peak Oil with glee. Certainty is definitely something that many feel about the likelihood of such a collapse.

  37. GK

    In fact, the invasion and occupation of Afghanistan and Iraq is a forward military tactical move to encircle Iran and Pakistan and contain any designs by China and Russia on Middle East oil supplies and shipping lanes.
    Yawn….. that is why the US is blocking a pipeline in Canada and refusing to drill off the US coast itself.
    Oh, and Russia is an oil exporter itself, and Pakistan is not an oil producer.
    but neither can the US allow China to continue to grow.
    Nevermind that per capita oil consumption worldwide is flat since 1982.

  38. Jeffrey J. Brown

    Copy of my letter to the WSJ:
    To the Editor:
    Contrary to Mr. Yergin’s assertion that advocates of Peak Oil have been wrong at every turn, six years of annual global production data show flat to declining crude oil and total petroleum liquids production data.
    The EIA shows that global annual crude + condensate production (C+C) has been between 73 and 74 mbpd (million barrels per day) since 2005, except for 2009, and BP shows that global annual total petroleum liquids production has been between 81 and 82 mbpd since 2005, except for 2009. In both cases, this was in marked contrast to the rapid increase in production that we saw from 2002 to 2005. Some people might call this “Peak Oil,” and we appear to have hit the plateau in 2005, not some time around mid-century.
    Only if we include biofuels have seen a material increase in global total liquids production.
    In the US, there are some good stories about rising Mid-continent production, and US (C+C) production has rebounded from the hurricane related decline that started in 2005, but 2010 production was only very slightly above the pre-hurricane level that we saw in 2004, and monthly US production has been between 5.4 and 5.6 mbpd since the fourth quarter of 2009, versus the 1970 peak of 9.6 mbpd. Incidentally, US net oil imports of crude oil plus products have fallen since 2005, primarily as a result of a large reduction in demand, because of rising oil prices (which Mr. Yergin predicted would not happen), but EIA data show that the US is still reliant on crude oil imports for two out of every three barrels of oil that we process in US refineries.
    However, the real story is Global Net Oil Exports (GNE), which have shown a measurable multimillion barrel per day decline since 2005, and which are measured in terms of total petroleum liquids. 21 of the top 33 net oil exporters showed lower net oil exports in 2010, versus 2005.
    An additional metric is Available Net Exports (ANE), which we define as GNE less Chindia’s (China + India’s) combined net oil imports. ANE have fallen at an average volumetric rate of about one mbpd per year from 2005 to 2010, from about 40 mbpd in 2005 to about 35 mbpd in 2010 (BP + Minor EIA data, total petroleum liquids).
    At the current rate of increase in the ratio of Chindia’s net imports to GNE, Chindia would consume 100% of GNE in about 20 years.
    Contrary to Mr. Yergin’s sunny pronouncements, what the data show is that developed countries like the US are being forced to take a declining share of a falling volume of GNE. In fact, our work suggests that the US is well on its way to “freedom” from its reliance on foreign sources of oil, just not in the way that most people hoped.
    In a November, 2004 interview in Forbes, Mr. Yergin asserted that oil prices would be back to a long term price ceiling of $38 by late 2005–because of a steady increase in global crude oil production. It turned out that Mr. Yergin’s predicted price ceiling has so far been the price floor. The lowest monthly spot crude oil price that the EIA shows for post-November, 2004 is $39.
    I suspect that just as Mr. Yergin was perfectly wrong about oil prices, he may be confidently calling for decades of rising production, just as we come off the current production plateau and just as an accelerating decline in Global Net Exports kicks in.
    Jeffrey J. Brown

  39. Jeffrey J. Brown

    Some additional comments:
    You will find one of our articles if you do a Google Search for: Peak Oil Versus Peak Exports.
    In our “Peak Oil Versus Peak Exports” article, we show the 1972 Texas production peak lined up with the 1999 North Sea peak. These two regions, which accounted for about 9% of total global cumulative crude oil production through 2005, were developed by private companies, using the best available technology, with virtually no restrictions on drilling, and both regions have shown clearly defined peaks, with production declines that corresponded to rapid increase in oil prices. In other words, Peaks Happen, and global crude oil production consists of the sum of discrete regions like Texas and the North Sea.
    Incidentally, just like the overall US, Texas has shown an increase in production, but Texas Railroad Commission data show that 2010 production is still below one mbpd (million barrels per day), versus a 1972 peak of about 3.5 mbpd.
    Slowly rising global unconventional production will help, but Canada for example has increased their net oil exports by only 0.25 mbpd over the last five years. Over the same five year period, net oil exports from Saudi Arabia fell by 1.9 mbpd. In other words, we would have needed about eight Canadas just to offset the five year decline in net oil exports from Saudi Arabia.
    Regarding Saudi Arabia, our work suggests that Saudi Arabia, in 2005, may have been at the same stage of depletion at which the prior swing producer, Texas peaked in 1972. In any case, Saudi annual crude oil production has been below their 2005 annual rate for five years, with four of the past five years showing year over year increases in oil prices. This was in marked contrast to the rapid increase in production that they demonstrated from 2002 to 2005. Our (Brown & Foucher) modeling work suggest that Saudi Arabia will probably be approaching zero net oil exports some time around 2030 to 2035, in 20 to 25 years.
    So far, the BP data base shows a 20% decline in annual Saudi net oil exports from 2005 to 2010, and if we extrapolate the Saudi’s 2005 to 2010 rate of increase in their ratio of consumption to production, they would approach 100%, and thus zero net oil exports, in only 14 years.

  40. bartman

    It’s sad to see this site turn into crackpot central.
    In the oil reservoirs we know about, we have produced maybe 10-15% of the oil. The vast majority is still there for the taking, and we are figuring out how to take it. When that’s been taken, we can look at exploring the 2/3rds of the globe that has never been explored.
    One day, oil will not be the marginal choice for transport fuel, probably due to technological reasons, but that day is far, far off into the future, probably beyond the lifespan of anybody alive today.

  41. Jeffrey J. Brown

    To summarize, in 2004/2005, Yergin predicted that oil prices would fall, because of rising production, and that there would be plenty of oil to meet Chindia’s increasing demand.
    So far, annual US oil prices have all exceeded the $57 level that we saw in 2005, with four of the past five years showing year over year increases in annual oil prices.
    Global C+C and total petroleum liquids production basically stopped growing in 2005.
    And the data show that Chindia, post-2005, is consuming a rapidly increasing share of a declining volume of Global Net Exports (GNE):
    So, how did the media respond to this catastrophic failure by Yergin and CERA? His prognostication skills are widely praised, and the WSJ gives him a full page for him to explain why near term Peak Oil advocates are wrong.

  42. John Butters

    Didn’t read the Yergin article as I don’t have all day but the fact is that there are some definite nuts on your side. I would cheerfully oppose them while accepting your argument about oil supply in the next few years.

  43. Jeffrey J. Brown

    Note that the near term Peak Oil advocates tend to present data, basically presenting a quantitative argument, while the critics tend to resort to hand waving qualitative responses and personal attacks, such as “Crackpots” and “Nuts.”
    It’s curious that those who find it unlikely that we can have an infinite rate of increase in our consumption of a finite fossil fuel resource base are widely considered to be “Crackpots.”

  44. Larry

    I submit that meeting the growing global demand for crude oil over the last five years has posed significant challenges for the world economy.

    I submit that the growing global demand for almost everything has posed, and will pose, “significant challenges for the world economy” — as you say yourself, this is almost tautological. But that’s not what the “peak oil” crazies are saying. Here‘s a flavor:

    …the world will have a “slow and painful” adjustment to peak oil lasting a century or more with the inevitable collapse of industrial society and the disintegration of free trade.

    That’s the kind of thing people are reacting to when they label “peak oil” enthusiasts “crackpots”.

  45. bartman

    Jeffrey, the peak oil advocates claim that we are mere months away from a cataclysmic societal collapse. Look at “” and then try to come up with a word other than “crackpot”.
    The only data that peak oil advocates present is from the past, which is irrelevant because the world changes, and technologically, the future (and the present) are very different from the past.
    Nobody thinks we can have an infinite rate of increase in oil consumption, and trying to frame your opponensts as doing so is somewhat disingenuous.
    I’m simply pointing out the fact that the resource doomsayers have always (every single time) been wrong.
    With respect to current oil prices, it because of a demand shock and the fact that supply adjustments are a bit slower and lumpier.
    The reality is that as economies develop they become less energy intensive. Oil consumption has peaked in Japan, will peak in the US and Europe within 5 years, and will probably do so in China in 20 years. Peak demand will occur long before supply constraints become onerous.

  46. Bruce
    GK writes “Who cares about the US? . . .
    WORLD per capita consumption has not increased since 1982. Again, WORLD.”
    And why do you think that is, GK? What has happened to US real incomes for everyone not associated with industries (FIRE sector) having directly benefited from the $40-$45 trillion in total credit market debt added to the US economy since world oil consumption per capita peaked and the US began deindustrializing the economy?
    And what was the principal driver of economic growth and development for the BRICs? Hint: NAFTA/GATT/WTO and tens of billions of dollars of US supranational firms’ investment abroad at the expense of domestic industrial investment. Why? We could not afford to due to US domestic oil production having peaked.
    Also, before one thinks that China is going to become US II, consider that China is now increasing debt by $6 to $1 of GDP, which is where the US was in ’07-’08, and higher than Japan in the late ’80s and early ’90s. China will not “rebalance” from fixed investment and exports to a consumption-based economy because their energy situation (oil imports to consumption, oil imports to GDP, etc.) is very much like that of the US after peak US oil production in the ’80s, only China is reaching the same point with global oil production having peaked, oil exports falling, and their largest export market (and source of FDI), the US, cannot grow hereafter.
    GK additionally adds “Your tangential rant is unimpressive. The blog linked does not even mention transhumanism once.”
    Are population carrying capacity and load and “energy slaves” really tangential to the topic of the global structural effects of Peak Oil and falling net energy and oil exports?
    As for the reference to Transhumanism, the author’s techno-triumphalist tone and his citing the singularity and Kurzweil speaks for itself.
    Regarding the US military strategy for the Middle East and Central Asia, it is not my idea; it’s that of the planners at the Pentagon and NATO.
    GK, as for Peak Oil nuts, unfortunately there are certainly those who are self-serving alarmists who do a disservice to anyone interested in a comprehensive understanding. Jeffrey Brown on this forum is not one of those nuts, and you would be well served to avail yourself of his insights.

  47. Jeffrey J. Brown

    bartman: “I’m simply pointing out the fact that the resource doomsayers have always (every single time) been wrong.”
    I pointed out, at some length, up the thread why your statement is inaccurate, and don’t you see a conflict between the following two statements?
    “Nobody thinks we can have an infinite rate of increase in oil consumption . . . I’m simply pointing out the fact that the resource doomsayers have always (every single time) been wrong.”
    In any case, if you would like to explore what I call “Net Export Math,” I recommend the following article:

  48. Vangel

    For instance, you state “The best data suggests that the production of conventional oil has already peaked”. But according to your own definition “has already peaked” means that total production has gone down, in absolute numbers. Which is at odds even with the data presented in this article, not to say reality.
    Look at this series of numbers: 1 .. 3 .. 7 .. 19 .. 21 .. 23 .. 23 .. 25. Has it peaked? No, even if it surely stopped growing as fast.

    But there is a problem in your statement. We do know that the series above has not peaked because we know that the units do not change with time. But that is not the case when talking about barrels of oil because the aggregate includes ethanol and other biofuels and makes no distinction between the high quality light sweet crude, which produces many useful end products and the heavier sour crude, which produces fewer such products. The issue is that not all barrels are the same and if you keep changing the rules to add new types of products to the count you cannot do a fair comparison to the past.
    The data is very clear about the fact that the production of light sweet crude peaked in 2005. While lower quality barrels have been added to the mix to make up the shortfall that has not changed the argument. If you want to be truly accurate you would break out each contribution to the aggregate and its end products and look at the production curve for every component. You would also look at the end products capable of being produced by each source and figure out where we stand with the production of each end product. If you were to do that the argument would be clear. We have peaked and given the high depletion rates there is no way to avoid a decline.
    The only real issue is do we go slowly down or do we fall off a cliff. Given the widespread use of horizontal drilling and water drives it seems to me that the odds favour the latter.

  49. JDH

    Bartman and others: Perhaps you have a particular group in mind when you say that “doomsayers” have always been wrong. But I hope you would entertain the possibility that one can claim that production from a given field eventually peaks without being a “doomsayer”. As I point out above, those who claimed that production in Pennsylvania, Texas, and Oklahoma would peak have been proven correct with a record that is now 50-100 years old. There are many, many other examples of fields that are far past peak. I do not like the use of the phrase “crackpot,” but if there is anyone who denies the accuracy of my previous two sentences, I think the expression might suitably be applied to them.

    I wonder on what basis you conclude that, although global oil production must eventually peak, the date at which that happens could not arrive soon. And I wonder on what basis you dismiss the statement that growing global demand for crude oil over the last five years has posed significant challenges for the world economy, and on what basis you dismiss the possibility that the next 5-10 years might be like the last.

  50. Bruce
    bartman, if you have not yet done so, I would suggest a few rather more reasoned, credible sources, such as William Catton (“Overshoot” and “Bottleneck”), Joseph Tainter (“The Collapse of Complex Societies”), Jared Diamond (“Collapse”), and Robert Kaplan (“The Coming Anarchy”), rather than so much unmeasured hyperbole one finds on the Web these days.
    Regarding Jay Hanson (die-off), as long ago as the mid- to late ’90s, he anticipated rather accurately Peak Oil and the associated global effects from falling net energy we are now seeing, including escalating resource wars.
    Similarly, Kaplan’s ’94 book has proven to be quite prescient.

  51. Just Asking

    What is the price of oil assumed in these discussions of peak oil?
    If one were to double or triple the assumed price, what impact would that have on the demand and supply of oil and the estimate and very notion of peak oil?
    What would changes in the assumed price of oil do to estimates of world oil supplies and the time horizon of eventual oil shortages?

  52. Vangel

    The only technological breakthough that could plausibly circumvent a peak oil scenario that comes to my mind would be development of cheap technology to exploit oceanic frozen methane beds, and doing that looks likely to be too expensive and risky for the medium term future.
    A lot would depend on the energy density of the hydrate deposits and the ability to come up with a viable collection system. Getting to the deposits should be simple enough. If we can mine vents on the ocean bottom we should be able to do the same with the hydrates. But the big problem is collecting all that gas and delivering it to the surface. Of course, given the incentives I would not be surprised if some intelligent engineer figured out how to do the gas to liquids conversion first and bring that to the surface. While it would add a level of complexity it would simplify the handling problems.

  53. Barkley Rosser

    In his book on peak oil, Simmons emphasized something that is worth keeping in mind. There is one oil field that is far larger than any other, al Ghawar in Saudi, producing on the order of 4 mbpd, with only four other fields anywhere barely over 1 mbpd. This is something like 5% of world production. When it goes down, very likely so will global production as well as there is nothing anywhere near its size to replace it, at least that is anywhere near as cheap as it is.
    As it is, there is increasing evidence that the Saudis are having more and more trouble keeping production up in it, particularly in its northern part. That said, I am not going to predict when the global peak oil moment will come.

  54. Jeffrey J. Brown

    Re: Just Asking
    Following is a graph showing the 1972 Texas Peak lined up with the 1999 North Sea peak:
    And following are graphs showing annual oil prices on the vertical axes versus production on the horizontal axes, for these two regions, around their respective peaks:
    As noted up the thread, these two regions were developed by private companies, using the best available technology, with virtually no restrictions on drilling, and the jointly accounted for about 9% of total global cumulative production through 2005.
    Global conventional crude oil production consists up the sum of the output of discrete regions like Texas and the North Sea.
    Kenneth Deffeyes predicted that global conventional crude oil production would peak between 2004 and 2008, most likely in 2005, and he thought that slowly rising unconventional production would not be sufficient to keep total production on an upward slope, and so far he has been right on all counts.
    As noted up the thread, the five year increase in Canadian net oil exports has been more of a trickle than a flood, and we would have needed eight Canadas just to offset the five year decline in net oil exports from Saudi Arabia.

  55. Rich Berger

    I am surprised that you did not tackle Yergin’s most important point which is the interaction of economics and technology:
    “Hubbert insisted that price didn’t matter. Economics—the forces of supply and demand—were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price—with all the messages that it sends to people about allocating resources and developing new technologies—apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.
    The idea of “proved reserves” of oil isn’t just a physical concept, accounting for a fixed amount in the “storehouse.” It’s also an economic concept: how much can be recovered at prevailing prices. And it’s a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.”
    Yergin puts his finger on the fundamental flaw in the peak oil argument.

  56. Bruce

    Just Asking, Rich, et al.,
    Something to consider. Total world petroleum consumption has averaged growth of 1.1%/yr. since ’01 and 0.5% since Peak Oil in ’04-’05.
    The nominal US$ price of oil is up three times since ’01 and up ~50-100%+ since Peak Oil in ’04-’05; but the monthly annualized trend rate of growth of total petroleum production since Peak Oil is slightly negative, with the running average trend rates decelerating since ’08-’10 to 0.4% and 0.2%.
    And the decelerating rate of trend growth of total petroleum production is occurring despite China-Asia’s growth and the significant increase in investment in capacity.
    Hubbert was right.

  57. colonelmoore

    Good, up to date data on domestic oil:
    Prudent Development –
    Realizing the Potential of North America’s Abundant
    Natural Gas and Oil Resources
    Final Report Approved September 15, 2011
    The Honorable Steven Chu
    Secretary of Energy
    Washington DC 20585
    Dear Mr. Secretary:
    In response to your letters of September 16, 2009 and April 30, 2010, the National Petroleum Council (NPC) conducted a comprehensive study to reassess the character and potential of North American natural gas and oil resources and the contribution that natural gas can make in a transition to a lower carbon energy mix while achieving objectives of environmental protection, economic growth and energy security.

    This study reached four conclusions. First, the potential supply of North American natural gas is far bigger than previously thought. It is now understood that the natural gas resource base is enormous and that its development, if carried out in acceptable ways, is potentially transformative for the American economy, energy security, and the environment, including reduction of carbon and other emissions. These resources could meet high projections of demand.
    Second – and surprising to many – North America’s oil resources are also much larger than previously thought. These oil resources offer substantial supply for decades and could help the United States reduce, though not eliminate, its reliance on imported oil.
    (In Part I linked above, it says that the US holds 25% of the world’s natural gas reserves. There are no technological barriers to it becoming a source of transportation fuel, as compressed natural gas or converted into liquid fuel by any of multiple processes.)

  58. Vangel

    If one were to double or triple the assumed price, what impact would that have on the demand and supply of oil and the estimate and very notion of peak oil?
    Obviously the rising prices would squeeze out marginal demand. But it is not clear that there could be enough investment to offset the depletion rate.
    Keep in mind that Yergin’s employer, CERA, has admitted to a depletion rate of 5%. That would mean that we lose around 4 mbpd of production each year without new discoveries and new development. Since prices exploded in 2005 there have been hundreds of billions in new investment but the production of light sweet crude is yet to reach the previous levels. Yes, some new investment can cause the supply of other liquid fuels to increase particularly if we have massive subsidies that transfer cash from the pockets of taxpayers and consumers to the privileged producers. But that is not sustainable for very long without creating other serious problems in the economy. Another big problem is the capital structure. Yes, we can plan to invest a few hundred billion to get a few million barrels from tar sands or heavy oil deposits. But the costs will usually come well over the estimates because the necessary workers, specialized equipment, service companies, etc., are in no position to do the required work within the specified time frame. There are too many shortages in the supply chain for production to increase quickly enough to offset the natural depletion. Another problem is that many of the new sources have depletion curves that are significantly higher and reservoirs that significantly lower energy densities.

  59. Keating Willcox

    Interesting discussion, but here are the salient facts. Even though oil will be more expensive to extract, the newest coal to liquid processes create a ceiling for the price of diesel and gasoline, roughly where they are today. New techniques are much cleaner and better than the traditional ones in South Africa, so that is good news. Nuclear power will transition from dangerous Uranium to cheaper Thorium, providing a truly limitless and cheap energy source for centuries to come. There will come a time when stuff coming out of oil wells is nasty and expensive, but we will be using fuel from Coal to drive around, and electricity from Thorium…The true shortage will not be oil or metals, it will be water.

  60. Jeffrey J. Brown

    I would refer you to my comments to “Just Asking.” Note that rising oil prices had no effect on the Texas and North Sea (conventional) declines.
    We shall see what happens, but the most recent annual data show that US natural gas imports increased from 2009 to 2010, and we remain one of the world’s largest net natural gas importers
    Regarding oil, in 2010 we just barely exceeded the pre-hurricane level that we were at in 2004, and monthly US crude + condensate production has been between 5.4 and 5.6 mbpd since the fourth quarter of 2009, versus a peak of 9.6 mbpd in 1970.
    We are currently losing the race between currently flat US crude oil production and what will probably be an accelerating rate of decline in Global Net Exports and in Available Net Exports. As noted up the thread, we are actually well on our way to becoming “Free” of our dependence on foreign sources of oil.

  61. bartman

    Professor Hamilton, after watching you speak so rationally during a panel discussion with the idiot Michael Masters at MIT a couple of years ago, I am somewhat saddened that you have chosen to ally yourself with the economic illiterates who form the peak-oil crowd. They’ve elevated Malthusianism to a religion.
    Since 2000, household expenditure on energy has risen from about 3.5% of income to about 6%, but remains at levels significantly below anything seen before 1983. While nobody likes spending more on anything, this is a minor component of the economic problems observed over the past four years.
    Stating that production from a certin state has peaked in the past does not make you a doomsayer-indeed, production from every single oil well peaks a couple of months after the well is brought on-line. The question remains, however, about how much oil remains in the ground, how cheaply or expensively we can extract it, and what are the costs versus the alternatives. We know that we have extracted a small percentage of oil in place in currently explored fields, we know that a much higher percentage of that can be (and is being) extracted at current prices with new applications of technology. We also know that lower marginal-cost alternatives using oil as a transportation fuel exist. All these factors point out that any increasing relative scarcity for oil that may exist in the future will not be a big deal.
    The economic answer is that there are many alternatives to oil, and if the price goes much higher, we will avail ourselves of those alternatives quite easily, without the broadscale pestilence and holocaust the peak-oilers want to see.
    Jeffrey, 2010 natural gas imports were down from 2009, 2009 was down from 2008, 2008 was down from 2007, and 2011 to date is down from 2010. Besides, looking at the US in isolation is meaningless. Instead, look at how much natural gas North America is importing, and the answer is about 0.6 Bcf/d, or about 0.8% of domestic (US + Canada) production. North America would be a net exporter if there was any infrastructure in existence, which there will be by 2015.
    But obviously, all of you worshippers at the high church of Malthus want to wallow in your pessimism. Be my guest.

  62. s@ndy

    The Peak Oil discussion bring forth the improtance of Communication. I am neither an economist, nor geologist or a petroleum engineer, but I definitely see a need for these people (read specialities) to communicate closely about the timing and consequences of the decline of world conventional oil production. We need a trans-disciplinary approach including common “language”, “assumptions”, “models” and “paradigms” so as to enable such communications.

  63. Bruce

    “The economic answer is that there are many alternatives to oil, and if the price goes much higher, we will avail ourselves of those alternatives quite easily, without the broadscale pestilence and holocaust the peak-oilers want to see.”
    bartman, “easy alternatives” are easy to assume but not so easy to achieve with the 10-yr. avg. trend of US real per capita private GDP contracting, falling EROI, falling oil exports, total credit market debt of $5.5 to get $1 of GDP, and the marginal costs of the necessary scaling up of “easy alternatives” being high in terms of having to sustain simultaneously the fossil fuel infrastructure.
    I have demonstrated, if anyone is paying attention, that the US economy cannot sustain growth of real GDP per capita with the price of oil above $20-$30. Had the US gov’t not borrowed and spent 50% of private GDP over the last three years, US GDP would be 10-15% smaller. How much R&D and investment would likely occur in shale and other “easy alternatives” under such circumstances? Yet, this is very likely the conditions we will face in the next 10-20 years, as gov’t spending will be constrained significantly.
    Moreover, apart from growth of debt-money/GDP and gov’t spending since US crude oil production peaked and US deindustrialization commenced in the 1970s-80s, the US economy has not actually grown sufficiently value-add productive capital stock (and human capital stock) at anywhere near the level to sustain both additional debt-based economic growth hereafter AND sufficient incomes and profits to permit building out “easy alternatives” at the necessary scale.
    It has been estimated that we would need to devote 50-75% of existing fossil fuel supplies to build out “easy alternatives”, and it would take ~20-30 years. But what do we do in the meantime about fuels needed for transport, agriculture, industry, petrochemical processing, electricity, etc., at the margin? Oops!

  64. Bruce

    “Nuclear power will transition from dangerous Uranium to cheaper Thorium, providing a truly limitless and cheap energy source for centuries to come.”
    Keating, have you examined closely thorium’s net energy returns and costs of water, scale, and ecological/waste/externalization particularly in terms of a substitute at current costs to maintain the fossil fuel infrastructure?
    Can thorium be used to extract and process thorium or to produce solar, wind, geothermal, and wave?
    And would you like to reconsider the phrase “limitless and cheap energy source for centuries to come”?

  65. Jeffrey J. Brown

    Here is the link to EIA data:
    The EIA counts dry natural gas production and consumption as production & consumption of natural gas (TCF).
    For 2009:
    Production: 21.0
    Consumption: 22.8
    Net Imports: -1.8
    For 2010:
    Production: 21.6
    Consumption: 24.1
    Net Imports: -2.5
    The ratio of consumption to production went from 109% in 2009 to 112% in 2010.
    And as noted up the thread, US crude oil production has been between 5.4 and 5.6 mbpd since the fourth quarter of 2009, while Available Net Exports are probably dropping at a volumetric rate of at least one mbpd per year. In other words, as noted above, we are gradually becoming “free” of our reliance on foreign sources of oil.

  66. Jeffrey J. Brown

    Incidentally, could you elaborate on the following two statements that you made, that to me seem contradictory?
    “Nobody thinks we can have an infinite rate of increase in oil consumption . . . I’m simply pointing out the fact that the resource doomsayers have always (every single time) been wrong.”
    You seem to be saying that discrete fossil fuel resources will peak and decline, but then you seem to state that there are no resource limits.

  67. Jeffrey J. Brown

    “Nobody thinks we can have an infinite rate of increase in oil consumption . . . I’m simply pointing out the fact that the resource doomsayers have always (every single time) been wrong.”
    It seems to me that your comment pretty well sums up the cognitive dissonance that many people seem to be experiencing, to-wit, they acknowledge that there are case histories of discrete regions showing a peak in some types of fossil fuel production, e.g., Texas & the North Sea, but “resource doomsayers” have always been wrong, and will presumably always be wrong.
    In other words, we will always find new sources of energy. This is the explicit case that Peter Huber makes–that our total consumption of energy will increase forever, even as discrete sources of energy peak and decline.
    Here is the problem that Huber, et al are facing. They have to convince themselves that the sum of the output of discrete sources of energy that peak and decline, e.g., crude oil production in Texas & the North Sea, will result in an infinite rate of increase in supply:

  68. dwb

    obviously, you cannot forecast quantities without prices. The cost of production is ever-increasing. If you tell me I can sell oil for $10000/barrel, then there are lots of ways to make oil, including electrochemically reducing carbon dioxide (using nuclear power) to make methane and then higher chain oil.
    but would you PAY that? No. Long before we will find substitutes. “Peak oil” is not about finite resources. Its about the ever increasing cost of production, and when and how we will shift away because there are cheaper substitutes.

  69. Rich Berger

    I don’t think the peak oil tubthumpers will ever learn. Almost all goods are scarce relative to the demand for them. Price is the mediator between supply and demand. If you don’t understand the economic way of thinking, there’s no point in trying to argue with you.

  70. Jeffrey J. Brown

    A relevant quote:
    “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” — Kenneth Boulding.
    In any case, as noted several times on this thread, rising oil prices had no discernible impact on the conventional Texas and North Sea declines.
    And regarding unconventional production, the trickle of increased net oil exports coming out of Canada has been overwhelmed by conventional declines elsewhere.

  71. Bruce

    ‘”Peak oil” is not about finite resources. Its about the ever increasing cost of production, and when and how we will shift away because there are cheaper substitutes.’
    dwb, yes, which, said another way, is about costs of net energy (EROEI) and scale, which in turn affect the level and rate of resource services throughput (goods and services) an economy, including accounting for the real (heretofore largely externalized or ignored) costs of waste and depletion of non-renewable resources.
    Without a continuous surplus flow of cheap (affordable) resources at a level and rate sufficient to sustain economic growth, which in turn permits a necessary level of extraction and processing of resources, economic growth slows or contracts, and along with it extraction and processing (what we call “production”) of resources.
    IOW, in the context of Peak Oil and population/ecological overshoot, we reached the de facto “end of sustainable growth” as long ago as 30-40 years ago (when the US reached peak crude extraction), and we have been consuming future maintenance (replenishing natural and man-made capital) at an increasing rate by monetizing future incomes, profits, and production today, ensuring contraction in the future.
    What is left now is somehow to manage contraction and reallocation of natural and man-made capital to sustain a desirable standard of material consumption and well-being per capita for as many of us as possible given the once-in-history contraints limiting our choices. There are no textbooks, economic schools of thought, or ideologies to inform us how to manage contraction.
    Droves of financial media pundits and e-CON-omists will blather on about who or which policy decision is to blame for this, that, or the other outcome, and which monetarist, supply-side, Keynesian, Chicago-school, or Austrian-school policies to implement; but they virtually all leave out the absolutely critical aspects of net energy, energy density, population overshoot, the sustainable level of resources services throughput, and so-called “energy slaves”, i.e., the net energy requirements of population loads for western civilization.
    Without an understanding of thermodynamics, population carrying capacity, and what “real wealth” is (not debt-money proxies representing discounted returns from compounding interest in perpetuity) we are asking the wrong questions, assume things that are not true, and thus will not understand the root causes of our challenges; therefore, we will not be compelled to take the necessary intellectual and emotional risks to make the difficult choices.
    Jeffrey is quite correct that most of us are experiencing (knowingly or otherwise) cognitive dissonace, largely because our Oil Age-era conditioning of perpetual growth on a finite planet does not permit us readily to accept evidence to the contrary.

  72. RG

    Bruce, Dr. Brown, are there any alternative sources out there that you think have potential? Or is it pretty much game over?

  73. Jeffrey J. Brown

    I assume you were referring to me. I’m afraid I am a lowly BS graduate from Texas A&M.
    In any case, a key phrase is incremental versus material.
    For example, we are seeing an incremental increase in Canadian net oil exports, up 0.25 mbpd from 2005 to 2010, but it didn’t make a material difference. It just served to slow the overall 2005 to 2010 decline in Global Net Exports down to about three mbpd.
    The economists are right that substitution is always a factor, but I suspect that alternative sources of energy will only make an incremental difference, not a material difference. I hope I am wrong.

  74. Bruce

    RG, yes among the cheapest energy alternatives in the world in relative terms to the number of “energy slaves” per capita we currently employ is low-entropy “human energy” or human labor, which will be combined due to sheer necessity with a long-term increase in persons/household and decrease in material standard of consumption per capita.
    Since US peak crude production, growth of debt-money to private non-residential fixed investment, industrial production, wages, and gov’t receipts/spending has far exceeded the latter, putting the US at the very real and durable risk of contracting back to the pre-peak US oil production era of the 1960s, which implies as much as a 50% decline in GDP per capita after price effects over the next 10-20 years.
    However, a 50-100% or more increase in persons per household (and reduction of cars and paid employment per capita) would serve to offset the decline in income/consumption/GDP per capita, which I expect is already underway for a small, but growing, segment of US society (and not just the poor and working class). I expect multi-generational households to increase dramatically over time, perhaps becoming a preferred arrangement.
    The emerging recession and stock bear market within an ongoing secular bear market and debt-deflationary slow-motion depression will exacerbate deteriorating economic conditions and serve to clarify and reinforce the reality of the trends stated above.
    Thus, the US tax code should be reset to eliminate taxes on labor, production, savings, productive capital accumulation, and inter-generational transfers (gifts, etc.), and then tax what we don’t want, e.g., pollution, waste, traffic, gov’t subsidies, etc.; that is, tax “uneconomic growth” and externalizing costs associated with waste and depletion of non-renewable resources, i.e., natural capital.
    But taxation should be at a much lower rate to GDP, creating incentives for individuals, families, and households to double and triple up to be self-supporting and reduce costs per capita while still maintaining a socially acceptable level of material consumption and well-being.
    The US has encouraged and subsidized “uneconomic growth” via debt-money and externalizing waste and resource depletion (as well as war, ecological destruction, etc.) to the point that growth is no longer possible. Capitalism as practiced since the 1920s-50s is the definition of COLOSSAL waste and is utterly unsustainable.
    We need desperately to abandon the fantasy of perpetual growth of population and resource consumption on a finite planet and instead be as collectively socially innovative as we are technologically clever in transitioning to the post-growth/post-Oil Age epoch.
    Peak Oil and the end of real uneconomic growth per capita need not be a gloom-and-doom scenario; but the current mass-social metanarrative discourages, even forbids, us from considering alternatives to the ecocidal path on which we currently travel.

  75. Bruce

    bartman: “Since 2000, household expenditure on energy has risen from about 3.5% of income to about 6%, but remains at levels significantly below anything seen before 1983. While nobody likes spending more on anything, this is a minor component of the economic problems observed over the past four years.”
    bartman, I invite you take a look at energy consumption per private GDP, wages, and household income today after household debt service in real terms AND per capita, and you will find that this is not the “minor component” you think it is, especially for the bottom 80% of US households.
    The bottom 80%+ of US poor, working-poor, and working-class, wage-earning households can no longer afford to bear no or falling real wages, job losses, and increasing energy costs, local and state taxes, and medical insurance premia and out-of-pocket costs for medical services.

  76. MadSat

    I have seen more intentional confusion and delibrate misuse of statistics in discussions relating to EROEI than any other subject I’ve ever had any interest in discussing. Moreover, it has always been nearly impossible to get any discussion of peak oil back on track after someone brings up EROEI, primarily due to the fact that EROEI is a fundamentally flawed concept that gives no credence to the system dynamic nature of the energy supply. EROEI true believers will hear no discussion of conversion of one energy form to another without repeatedly stating “you are losing energy and it’s negative”. And SO WHAT? If I need liquid fuel, and it takes 4x the energy created as liquid to convert cheap natural gas to liquid, and the price is less than conversion of light sweet crude to gasoline, what does it matter? To an EROEI worshipper it’s a tremendous thing, to everyone else it’s not a problem. Bringing EROEI into any energy discussion means the whole thing degenerates to “WE ARE DOOMED” in short order. I’ve had EROEI advocates try to tell me there was never an industrial revolution because it takes more energy to mine coal than you get from burning it. And I’ve done numbers on that problem on a modern coal mine, it was my JOB, and they are totally off base. Measured actual return on that mine from all inputs to output was better than 60 to 1. EROEI is just a doomsayers buzzword without any meaning, unless you carefully define exactly what you are talking about as input/output and exactly where the inputs and outputs are going and how they are used, you can’t use averages or national figures or worst case figures on anything because they are not meaningful. There is a REASON why power plants are built close to coal mines, there is a reason why aluminum smelters are next to power plants, there are reasons why Detroit was the car manufacturers capital in the 50’s and why it isn’t now. And every single one of those reasons has to do with increasing efficiency of supply. In any system that’s left to itself, EROEI will naturally maximize because economic decisions will force it to do so FOR THE TOTAL SYSTEM. This bug eyed myopia that ignores the system for a tiny sub system is not a valid means of analysis of system dynamics.

  77. aaron
    You can see here (data from BEA PCE tables) that the increase in gasoline and energy expense and medical are greater than the decrease in financial services and housing the past few years. Since the end of 2004 (remind me what happened then?) expensive I would consider non-discretionary have made up more than 50% of disposable income. And as Bruce points out, it’s much worse for the lower brackets.

  78. Bruce

    Madstat, EROEI appears irrelevant as long as there is a net surplus that permits a sufficiently increasing rate of resource services throughput for a system (economy) to sustain further increases in EROEI and throughput; and it is easy to assume that EROEI and throughput will continue at the necessary rate when our system of accounting ignores or externalizes the cost of waste and non-renewable resource consumption/depletion (domestic and foreign).
    For example, were we to account for the total costs associated with shale, coal, tar sands, oil, nat gas, petrochemicals, etc., in terms of costs required to be borne by extractors for waste disposal, health, ecological, water, transportation, etc., the extraction and processing costs would be prohibitive, supply would decline, and the society would be forced to adopt choices and a standard of material consumption that more closely reflects the true costs of what we extract, process, consume, and dispose of.
    The direct and indirect effects of the true costs of US peak crude production and falling EROEI are there, whether or not we recognize them and account for them. Medical spending/private GDP is 22%. Bank lending/private GDP is over 70% (historical average below 50%). War spending/private GDP is 10%. Household debt service/private GDP is 12-13%. In addition to total gov’t spending (including personal transfers), these sectors account for all of the incremental “growth” of US GDP over the past 10-11 years: illness, endless war, and indebtedness.
    The manifest effects of US peak crude oil production (having fallen 60-65% per capita since 1970) and falling net energy are everywhere. One of many indicators is that US real industrial production per capita (IPPC) has fallen 70% since 1970. To make up for the loss of IPPC, we grew debt-money to income and GDP at an order of exponential magnitude beyond wages and IPPC in order to borrow to buy goods from US firms’ subsidiaries having invested tens of billions of dollars in Mexico and China-Asia.
    It is claimed by economists that US productivity has risen over the past 30-40 years because of innovation, inventory systems, and our becoming much more energy efficient (less oil consumed per capita and GDP). This is just silliness. Labor productivity did increase dramatically but only in high-tech but most especially in China-Asia where US offshore capital investment significantly increased capital deepening of labor at very low comparative levels of Asian wages, waste management, and energy consumption per capita. That the costs of goods to US consumers were cheaper and plentiful did not make up for the loss of US value-add investment and production, capital formation, and labor income lost over the period.
    And there have been MASSIVE reflationary returns to financial capital’s share of output from compounding interest and capital gains, most of which goes to the top 0.1-1% to 10% of households. But that’s over with the bursting of the secular debt-money bubble.
    Now we are faced with having drawn down oil production and the deindustrialization, financialization, and militarization of the US economy to the point that debt-money levels and associated service costs will no longer allow the bottom 80-90% of US households to increase consumption, which in turn means new small private business formation will not occur, and existing firms must contract.
    Private payrolls per capita are back to the level of the late 1980s and falling; full-time US employment per capita is back to the level of the late 1970s and early 1980s and falling; employment for males per capita is back to the level of the 1960s; and employment per capita for those age 16-24 is back to the levels of the Great Depression.
    Further, there are myriad effects of global peak oil production and falling net energy per capita occurring around the world, including falling receipts and fiscal crises, high unemployment/underemployment, falling real wages, contracting real US private GDP per capita, social unrest, extreme wealth and income concentration, failed states, and war.
    Many will attribute the aforementioned effects to political corruption, bureaucratic incompetence, misguided policies, and so on and then assume that we can resolve the problems by drilling more oil and gas, cutting taxes and running even larger deficits or cutting gov’t spending, and scaling back or eliminating regulations; but this view assumes that business as usual of the past 30-40 to 80-90 years of the peak-Oil Age era and auto- and oil-based economy can continue, including in China-Asia, with some modifications and a little more faith in technology and ingenuity.
    Yet, increasing dependence upon technological complexity has its own costs to overall net energy and marginal economic activity per capita. Unless the increasing technological complexity results in (or occurs coincident with) a net increase in systemic EROEI, the incremental costs of technological improvement will reduce EROEI and reduce marginal returns to technology at the given scale.
    This is one of several reasons “alternative energy” and non-conventional liquid fossil fuel sources will prove to be disappointing in terms of EROEI, returns to investors, and future energy supplies.

  79. Jeffrey J. Brown

    Following is my first draft of the summary of a paper I am writing on Mr. Yergin’s 2004/2005 predictions regarding oil prices, production and exports:
    Summary, Three Strikes and You Are Out?
    In late 2004, Daniel Yergin predicted that we would be back down to a long term price ceiling of about $38 by late 2005. A year later, in late 2005, the WTI spot price was about $58, and Mr. Yergin’s predicted price ceiling has in fact so far been the price floor. Strike One.
    In 2005, Mr. Yergin predicted that there would be a “Large, unprecedented buildup of oil supply in the next few years.” After rising sharply from 2002 to 2005, global total petroleum liquids production has basically been flat, similar to the production plateau that we saw in the North Sea. Strike Two.
    In 2005, Mr. Yergin implied that rising demand from Chindia could be easily accommodated, without adversely affecting other importers, because of the “unprecedented buildup of oil supply.” While Chindia increased their net oil imports from 2005 to 2010, many developed countries, especially the US, were forced to take a declining share of a falling volume of Global Net Exports. Strike Three.
    So, three strikes and you are out? Surely multiple media outlets have taken note of how catastrophically wrong Mr. Yergin has been? If they have, I haven’t seen any evidence of it in the Mainstream Media (MSM).
    I am beginning to think that the MSM can’t afford to damage Mr. Yergin’s credibility, since he is their designated expert on why Peak Oil is some kind of hallucination. In fact, Mr. Yergin’s usefulness to the media will probably only increase as evidence for a near term peak/plateau in global production, and a peak in Global Net Exports, continues to accumulate.
    I am frequently reminded of the old joke about a wife who comes in and finds her husband in bed with another woman. He vehemently denies it and asks, “Who are you going to believe, me or your lying eyes?” It would appear that Mr. Yergin’s designated role is to persuade us that we are not seeing what we are seeing. “There are none so blind, as those who will not see.”

  80. Clayton

    I see a fair bit of discussion of CTL Fischer-Tropch as a liquid fuel savior, but there are very significant logistics constraints against this, namely by way of the vast quantities of coal consumed:
    “At its giant synfuels complex at Secunda in South Africa, Sasol converts more than 40-million metric tons of coal a year into liquid fuels, industrial pipeline gas and a range of chemical feedstock, including the building blocks for industrial solvents and polymers.The Secunda site comprises two giant factories with a combined capacity
    equivalent to about 150,000 barrels a day.”
    Presumably you’re scoring some other assorted products in that trade off (industrial waxes and so forth), but that’s still brutal if you’re looking for big numbers.
    If America were to divert half of the current coal production to liquids (just under a billion metric tons a year), you’re looking at under 2 million barrels a day of diesel. Even if you crank up the efficiency beyond the South Africans rates by 100%, you’re looking at very real limits as to the volumes procured.
    And that’s not even bringing in the question of water consumption, which I have no data on other than a sneaking suspicion that it’s somewhere in the neighborhood of “more than we got”.
    There is probably a future for CTL, but it’s more like ohwilleke said: low volume rates for high grade petro-feedstocks of the irreplaceable variety. “Some” liquids too? Maybe, but Peabody doesn’t look like a game changer for the transport sector.

  81. Bruce

    Deuce, we can’t have $80-$100+ oil, “easy alternatives” (or any sufficiently scalable growth), AND our (real private per capita) uneconomic growth, too.
    I will make an ironclad, falsifiable prediction: There will be no sustained global real private per capita uneconomic growth with the price of WTIC above $20-$40/bbl; and the same measure for the US will contract on a 10-yr. avg. trend basis hereafter.
    With Peak Oil, falling oil exports, population overshoot, and the Boomer demographic drag effects, if the price of oil falls to below $40-$50/bbl, it will be because the global economy experiences another deflationary contraction; therefore, “easy alternatives” will not be viable.
    Perhaps there is enough there for one to construct a falsifiable hypothesis.

  82. Bruce
    China’s oil consumption and oil imports are on course to reach parity with that of the US by no later than the early ’20s, at which point the US and China will consume well over half (38% today) of total world peak crude oil production and nearly two-thirds (nearly half today) of global oil exports.
    That GDP per capita is highly correlated with oil consumption per capita, the global economy will come to a screeching halt and risks severe contraction long before US-China oil consumption and import parity can occur.
    China is akin to Japan, Germany, Spain, and Italy in the 1930s in the context of vulnerability to resource constraints on further industrial growth.

  83. Daniel

    A great series of posts.
    It seems that oil will be more and more costly as it costs more to extract and refine it, unless the prohibitive cost of doing so slows global demand enough to maintain a lower price point, but that will limit profits and therefore investment for maintaining future production, so not significantly reduce the price of oil over time. This will increase demand for natural gas, and several decades of reserve will be gone in a couple decades instead.
    How can economies that put all their eggs in the fossil fuel and personal/national debt basket grow their way out of this when they depend on cheap energy, cheap foreign labor, and consumer debt to do so? And what about that little thing called carrying capacity?

  84. Jeffrey J. Brown

    You are referring to gross imports. Here are the net import numbers for 2009 and 2010, derived from the same website:
    Here is the link to EIA data:
    The EIA counts dry natural gas production and consumption as production & consumption of natural gas (TCF).
    For 2009:
    Production: 21.0
    Consumption: 22.8
    Net Imports: -1.8
    For 2010:
    Production: 21.6
    Consumption: 24.1
    Net Imports: -2.5

  85. JDH

    Patrick: Looks like that’s a graph of somebody’s projection. Actual numbers can be found here, which show 2010 to have been an all-time high.

    There are other ways to calculate these numbers (e.g., light, sweet crude from conventional sources) which indicate we are past a peak.

  86. kevin

    Daniel Yergin,is a tool of the MSM and anything he says should be taken with a grain of salt. A few months ago he was on BLOOMBERG promoting his new 900 page book complete with photos with another objective journalist Tom Keene telling Keene that Peak Oil was some sort of old wifes tail,a fringe topic that had no merit and no real research to back up the theory.Listening to his babble I said its time for a little music. I could not take any more of Yergin or Keene.

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